Swiss central banker quits amid controversy

Franc rises, but SNB says no change to cap on currency’s value

By

WilliamL. Watts

FRANKFURT (MarketWatch) — Switzerland’s central bank on Monday warned traders not to test its resolve in defending a cap on the value of the Swiss franc in the wake of its chairman’s abrupt resignation amid an escalating controversy over his wife’s currency trades.

The resignation of Philipp Hildebrand provided modest support for the Swiss franc as traders questioned whether the Swiss National Bank will be as committed to preserving the cap that the central bank placed on the value of the currency last year. The SNB in September decreed that the euro wouldn’t be allowed to trade below 1.20 Swiss francs.

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But the SNB Governing Board, in a statement, said the measure would remain in place and unchanged. “This policy will be pursued further with the utmost determination,” the SNB said.

“As the key architect behind the euro-Swiss franc peg, his resignation pushed the franc higher. The main concern was that the SNB would no longer consider a higher peg for euro/Swiss franc and may even back away from their current peg,” said Kathy Lien, director of currency research at GFT.

Hildebrand, in a written statement, insisted that he hadn’t known about transactions, but concluded he would be unable to provide sufficient evidence that his wife, Kashya, a former hedge-fund manager, had initiated a trade to buy dollars and sell francs a few weeks ahead of the decision to implement the euro/Swiss franc floor.

The Swiss franc fell sharply versus most major rivals, including the dollar, in the weeks following the implementation of the policy.

“I have come to the conclusion that it is not possible to provide conclusive and final evidence that my wife did indeed initiate the foreign exchange transaction on the 15th of August without my knowledge,” he said. “The fact is: my word is my bond. I had no knowledge of my wife’s transactions that day.”

As a result of the controversy, Hildebrand said he concluded that he would not be “in a position to make the kinds of tough decisions and to implement them with the same rigor and success as in the past.”

Both analysts said they expected the SNB to fend off any challenges to the CHF1.20 floor for the currency cross.

Any attempt to push the euro through that level “is going to be rewarded with the SNB standing there with a bazooka,” Roesenstreich said.

GFT’s Lien said the SNB was unlikely to move away from the policy given its success. The euro hasn’t traded below 1.20 francs since it was implemented.

Hildebrand also gave up his post as vice chairman of the Financial Stability Board, the Basel-based, international organization of regulators in charge of coordinating Group of 20 efforts to regulate the financial sector.

Thomas Jordan, the three-member SNB Governing Board’s vice chairman, will serve as chairman for the time being, the SNB said. The open position on the board will be filled as soon as possible.

Hildebrand, 48, said last week that he had committed no wrongdoing and that he wouldn’t step down as long as he had the backing of the government and the SNB board. Hildebrand said he regretted not reversing his wife’s transaction at the time.

Hildebrand over the weekend saw several of the countries’ largest parties rally to his support. Swiss President Eveline Widmer-Schlumpf, who is also the country’s finance minister, told Swiss television on Friday that there was “absolutely no reason” for the Swiss government to distrust Hildebrand, Bloomberg said.

In a statement, the SNB Governing Board said Switzerland “is losing an outstanding central banker with excellent international connections, which have brought great benefit to our country.”

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